Low carbon credit: navigating rates, inflation and tighter spreads
In this quarterly update, portfolio manager Daniel Berg and host Stale Frausing discuss developments in low carbon credit markets, with a focus on rates, inflation and tightening spreads in an uncertain macro environment.
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Geopolitics and inflation shape the backdrop
Recent developments related to the Iran conflict have influenced markets, with expectations of a potential peace agreement contributing to tighter credit spreads. At the same time, inflation remains stubbornly high in the US, pushing markets to price in a higher likelihood of further rate hikes despite the Federal Reserve holding steady for now.
Diverging paths in the US and Europe
While inflation pressures persist in the US, the European outlook appears weaker. The ECB has continued tightening despite soft economic data, a move increasingly questioned as recent inflation readings from key economies such as Germany and France indicate easing price pressures.
Fund performance supported by spreads and carry
Despite a challenging environment, the fund has delivered positive returns since April, supported by tightening credit spreads and slightly lower long-term rates in Europe. The running yield has become increasingly attractive, currently around 6.4% in the Norwegian fund, reflecting improved income potential.
New dynamics in credit markets
Rising investment in artificial intelligence is becoming a key theme in credit markets, with large technology companies issuing significant amounts of debt. New entrants, including SpaceX in the investment grade segment, highlight how capital-intensive innovation is shaping issuance patterns.
Outlook: constructive on duration, cautious on spreads
Looking ahead, the team remains constructive on duration but more cautious on credit spreads, which are near historically tight levels. While some inflation uncertainty remains, longer-term rates are expected to remain relatively contained, supporting carry. In the webinar, Daniel Berg expands on these themes, discussing portfolio positioning and the key risks and opportunities investors should monitor in the months ahead.